Big bank predicts rate hike

Big bank predicts rate hike

The end of record-low rates is nigh, according to one major bank, which has taken a stance and predicted when the Bank of Canada will raise its long-standing overnight rate.

“Firming price pressures and strengthening labour markets are consistent with a gradual path to normalizing interest rates,” TD Bank’s quarterly economic forecast, released Thursday, states. “We see the Bank of Canada beginning to raise its overnight rate in mid-2015.”

The overnight rate has been held at one per cent since September 8, 2010.

“The Bank remains neutral with respect to the next change to the policy rate: its timing and direction will depend on how new information influences the outlook and assessment of risks,” the Bank of Canada said in its most recent statement about the overnight rate, released in early September.

TD Bank, however, predicts the short term rate will hit 2 per cent by the end of 2016. The bank believes even a slight increase will put a limit on household spending, as debt-to-income levels are still around 165 per cent.

Of course, it wouldn’t be an economic forecast if the bank didn’t mention the current state of the housing market, which it still holds a conservative stance on.

“In the near term, the housing market and household debt levels present an upside risk to the forecast,” the statement says. “Borrowing rates remain at record lows and housing momentum has stayed strong.

“Over the medium term, we still expect a cooling trend, consistent with a gradual increase in both trend inflation and interest rates.”

I sat in a session with TD's top economist early spring of 2013 where he all but guaranteed a min. of .5% increase to prime by this time in 2014. Nothing has happened. They always say rates will go up and usually do not. Perhaps just trying to create a monopoly and burst in business for themselves by scaring the public. Canada and the U.S. cannot afford to have rates rise by much at all, do not see this happening.

I agree with Frank. Have a look at TD, and pretty much any economic forecaster's record of predicting and they rarely get it right. Most of the time they do it's a fluke. Great media attention and hype....that's it. 9+ months out is a long way away. It is inevitable that rates will rise, sooner or later someone will guess right but not because they are great forecaster's.....just lucky to time it right!!